4 sectors real estate investors like right now | Ezine Daddy

The real estate market has never been easy to forecast, especially not today. The Federal Reserve is raising interest rates for the first time since 2018, and the war between Russia and Ukraine is shaking trade around the world. Industry watchers say the market is feeling the uncertainty.

“I think the economic toll will be a real change in how people think about who their trading partners are and where things are actually produced in the supply chain, and that’s going to have a big impact on real estate and our own US economy,” Chris said Lee, partner and head of real estate Americas at KKR, at the recent MIT Sloan Investment Conference.

In 2020, US commercial property sales plummeted from a record high of $600 billion in 2019 due to the COVID-19 pandemic. But in 2021, sales rebounded to a record $809 billion. The market “flew back in 2021 and had one of the greatest years we’ve ever had,” said Kristin Friese Gannon, MBA ’97, managing director at Eastdil Secured.

Gannon moderated the panel, which included Lee; James Chung, MBA ’00, Chief Investment Officer of the ROC Debt Strategy Fund at Bridge Investment Group Partners; and Michael Haggerty, EMBA ’19, Managing Partner at TA Realty. Here’s what’s on her mind right now.

Apartment buildings are developing well in a tight housing market

$ 8th 0 9 B

Commercial real estate sales in the US hit a record $809 billion in 2021.

The multifamily sector continues to be a hot real estate area as high single family home prices shift interest to multifamily housing.

There was about $300 billion in real estate transaction volume in the fourth quarter of 2021, and about half of that was multifamily, said Haggerty, who is bullish on the sector. “Before COVID, our book was about 65% apartment buildings, 20% offices, and 15% everything else,” he said. “Now our pipeline is 95% multifamily and 5% everything else.”

Chung said he’s seen more multifamily conversions made from unused office space, a “great way to capitalize on the multifamily trend.”

Life Sciences is pandemic-proof

The pandemic accelerated an already growing interest in life sciences. Chung estimates that about 80% of the office deals he does now have a life science building conversion angle.

Lee noted interest in spaces in Cambridge, Boston, and South San Francisco. “I think a lot of these buildings can be retrofitted and I think that’s going to be a huge deal for people,” he said.

Another bonus for the strong demand in the industry: life sciences require some quality control, so you can’t really research and develop or manufacture drugs from home.

Retail is improving, office still sags

Haggerty said he recently noticed a “recovery in retail” after poor performance during the pandemic, as consumers stayed at home and doubled their online purchases.

And with many businesses maintaining some level of remote work, the office space sector continues to struggle. Chung said that “even before the pandemic hit, the office was a bit of a concern.” Around 80% of the business plans that crossed his desk involved renting an office building with a co-working tenant, such as

“We actually started cutting our office lending a little bit before COVID just because we were worried about business plans,” Chung said. “We still lend them a little bit of money, but only at a much more conservative level.”

The demand for student residences is booming

College cities, especially affordable ones that contain the big “Power Five” schools, have big underlying trends with educational opportunities and growing populations, Lee said.

Lenders used to have negative views of college housing, but the pandemic has turned that on its head pretty quickly. In the early years of the pandemic, the college dorm tenant base was “most immune to COVID” and at “least risk,” Chung said.

“A lot of universities stayed open or opened up as best they could, and students wanted to get back on campus and there’s real demand for it,” he said. “So it’s been a good stress test for college housing, and as a lender, that’s great.”

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